Lawrence J. Christiano, Mathias Trab, Karl Walentin
Preliminary and not for distribution. Prepared for Handbook on Monetary Economics, edited by Friedman and Woodford.
The Expectations Trap Hypothesis (2010)
Lawrence J. Christiano, Christopher Gust
Many countries, including the United States, experienced a costly, high inflation in the 1970s. This article reviews some research devoted to understanding why it happened and what can be done to...
How Do Canadian Hours Worked Respond to a Technology Shock? (2008)
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
This paper investigates the response of hours worked to a permanent technology shock. Based on annual data from Canada and the United States, we argue that hours worked rises after a positive...
Lawrence J. Christiano, Lawrence J. Christiano, J. Christiano, Christopher J. Gust, Christopher J. Gust, Christopher J. Gust
Evanston, Illinois, and a visiting consultant with the Federal Reserve Bank of Cleveland. Christopher J. Gust is an economist with the Board of Governors of the Federal Reserve System. Working papers...
The Great Depression and the Friedman-Schwartz Hypothesis (2004)
Christiano, Lawrence J., Motto, Roberto., Rostagno, Massimo.
Journal of Money, Credit, and Banking - Volume 35, Number 6 (Part 2), December 2003
Expectation Traps and Monetary Policy (2003)
Stefania Albanesi, V. V. Chari, Lawrence J. Christiano
Why is inflation persistently high in some periods and low in others? The reason may be absence of commitment in monetary policy. In a standard model, absence of commitment leads to multiple...
Lawrence J. Christian, Jonas D. M. Fisher, Lawrence J. Christiano, Jonas D. M. Fisher, Wouter Den Haan, Kenneth Judd, ...
the Federal Reserve Bank of Chicago. Jonas D.M. Fisher is
Time to Plan and Aggregate Fluctuations (1996)
Lawrence J. Christiano, Richard M. Todd
This article investigates the business cycle implications of the planning phase of business investment projects. Time to plan is built into a Kydland-Prescott time-to-build model, which assumes that...
Asset pricing lessons for modeling business cycles (1995)
Boldrin, Michele, Christiano, Lawrence J., Fisher, Jonas D. M.
We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in aceounting for business...
52 p. :
This paper describes and implements a procedure for estimating the timing interval in any linear econometric model. The procedure is applied to Taylor’s model of staggered contracts using annual...
Is consumption insufficiently sensitive to innovations in income?
Deaton (1986) has noted that if income is a first-order autoregressive process in first differences, then a simple version of Friedman’s permanent income hypothesis (SPIH) implies that measured...
Money does Granger-cause output in the bivariate output-money relation
Lawrence J. Christiano, Lars Ljungqvist
A bivariate Granger-causality test on money and output finds statistically significant causality when data are measured in log levels, but not when they are measured in first differences of the logs....
The permanent income hypothesis revisited
Lawrence J. Christiano, Martin Eichenbaum, David Marshall
Measured aggregate U.S. consumption does not behave like a martingale. This paper develops and tests two variants of the permanent income model that are consistent with this fact. In both variants,...
Optimal fiscal and monetary policy: some recent results
V. V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
This paper studies the quantitative properties of fiscal and monetary policy in business cycle models. In terms of fiscal policy, optimal labor tax rates are virtually constant and optimal capital...
Liquidity effects and the monetary transmission mechanism
Lawrence J. Christiano, Martin Eichenbaum
Several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in...
Optimality of the Friedman rule in economies with distorting taxes
V.V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on preferences similar to those in the public...
Optimal fiscal policy in a business cycle model
V.V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium the ex ante tax rate on capital income is approximately zero. There...
Algorithms for solving dynamic models with occasionally binding constraints
Lawrence J. Christiano, Jonas D. M. Fisher
We describe several methods for approximating the solution to a model in which inequality constraints occasionally bind, and we compare their performance. We apply the methods to a particular model...
Small sample properties of GMM for business cycle analysis
Lawrence J. Christiano, Wouter Den Haan
We investigate, by Monte Carlo methods, the finite sample properties of GMM procedures for conducting inference about statistics that are of interest in the business cycle literature. These...
Tobin's q and asset returns: implications for business cycle analysis
Lawrence J. Christiano, Jonas D.M. Fisher
The marginal cost of plant capacity, measured by the price of equity, is significantly procyclical. Yet, the price of a major intermediate input into expanding plant capacity, investment goods, is...
Chaos, sunspots, and automatic stabilizers
Lawrence J. Christiano, Sharon G. Harrison
We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria,...
The Great Depression and the Friedman-Schwartz Hypothesis
Lawrence J. Christiano, Roberto Motto, Massimo Rostagno
We evaluate the Friedman-Schwartz hypothesis that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression. To do this, we first estimate a dynamic,...
Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations.
Christiano, Lawrence J, Eichenbaum, Martin
Hours worked and the return to working are weakly correlated. Traditionally, the ability to account for this fact has been a litmus test for macroeconomic models. Existing real-business-cycle models...
Optimal Fiscal Policy in a Business Cycle Model.
Chari, V V, Christiano, Lawrence J, Kehoe, Patrick J
This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium, the ex ante tax rate on capital income is approximately zero. The...
The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald and Kimball (1999). We conclude that hours worked...
Optimal Fiscal Policy in a Business Cycle Model
V. V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium the ex ante tax rate on capital income is approximately zero. There...
Optimality of the Friedman Rule in Economies with Distorting Taxes
V. V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on preferences similar to those in the public...
Sticky price and limited participation models of money: a comparison
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
We provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts. After a contractionary monetary policy shock, the aggregate price...
The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald, and Kimball (1999). We conclude that hours worked...
Money and the U.S. economy in the 1980s: a break from the past?
Money supply ; Velocity of money
Why is consumption less volatile than income?
Consumption (Economics) ; Business cycles ; Income
Understanding Japan's saving rate: the reconstruction hypothesis
This paper evaluates Hayashi's conjecture that Japan's postwar saving experience can be accounted for by the neoclassical model of economic growth as that country's efforts to reconstruct its capital...
P*: not the inflation forecaster's holy grail
This paper describes and evaluates P-Star (P*), a new method to forecast inflation trends which was introduced by the Federal Reserve Board of Governors in the summer of 1989. The paper examines how...
Modeling the liquidity effect of a money shock
There is widespread agreement that a surprise increase in an economy's money supply drives the nominal interest rate down and economic activity up, at least in the short run. This is understood as...
Time to plan and aggregate fluctuations
Lawrence J. Christiano, Richard M. Todd
This article investigates the business cycle implications of the planning phase of business investment projects. Time to plan is built into a Kydland-Prescott time-to-build model, which assumes that...
How severe is the time-inconsistency problem in monetary policy?
Stefania Albanesi, V. V. Chari, Lawrence J. Christiano
This study analyzes two monetary economies, a cash-credit good model and a limited-participation model. In these models, monetary policy is made by a benevolent policymaker who cannot commit to...
Two Flaws In Business Cycle Accounting
Lawrence J. Christiano, Joshua M. Davis
Using 'business cycle accounting' (BCA), Chari, Kehoe and McGrattan (2006) (CKM) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising...
Unit Roots in Real GNP: Do We Know, and Do We Care?
Lawrence J. Christiano, Martin Eichenbaum
No, and maybe not. [additional text from author's introduction] To us, the possibility of providing a compelling case that real GMP is either trend or difference stationary seems extremely small,...
It has been suggested that existing estimates of the long-run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in post war U.S. GNP data....
Lawrence J. Christiano, Martin Eichenbaum
In the l93Os, Dunlop and Tarshis observed that the correlation between hours and wages is close to zero. This classic observation has become a litmus test by which macroeconomic models are judged....
Introducing Financial Frictions and Unemployment into a Small Open Economy Model
Christiano, Lawrence J., Trabandt, Mathias, Walentin, Karl
How important are financial and labor market frictions for the business cycle dynamics of a small open economy? In order to address this question we extend the small open economy model presented in...
The Great Depression and the Friedman-Schwartz Hypothesis
Lawrence J. Christiano, Roberto Motto
We evaluate the Friedman-Schwartz hypothesis that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression. To do this, we first estimate a dynamic,...
Expectations, traps and discretion
V.V. Chari, Lawrence J. Christiano, Martin Eichenbaum
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy...
Understanding the fiscal theory of the price level
Lawrence J. Christiano, Terry J. Fitzgerald
Price stability is an important goal of public policy. To reach this goal, two key questions must be addressed: How can price stability be achieved? And, how much price stability is desirable? The...
The effects of monetary policy shocks: evidence from the flow of funds
Lawrence J. Christiano, Martin Eichenbaum, Charles Evans
Flow of funds ; Monetary policy
Lawrence J. Christiano, Terry J. Fitzgerald
We develop optimal finite-sample approximations for the band pass filter. These approximations include one-sided filters that can be used in real time. Optimal approximations depend upon the details...
Cagan's Model of Hyperinflation under Rational Expectations.
This paper studies P. Cagan's model of the German hyperinflation under the hypothesis that adaptive expectations are rational. It shows that inference about the key money demand elasticity parameter,...
Solving Dynamic Equilibrium Models by a Method of Undetermined Coefficients.
I present an undetermined coefficients method for obtaining a linear approximating to the solution of a class of dynamic, rational expectations models. I also show how that solution can be used to...
HABIT PERSISTENCE AND ASSET RETURNS IN AN EXCHANGE ECONOMY
BOLDRIN, MICHELE, CHRISTIANO, LAWRENCE J., FISHER, JONAS D.M.
We examine asset prices and returns in the context of a pureexchange economy. Our purpose is to identify the key channels by which changes in preferences affect the equity premium and the risk-free...
Liquidity Effects, Monetary Policy, and the Business Cycle.
Christiano, Lawrence J, Eichenbaum, Martin
This paper presents a flexible-price, quantitative general equilibrium model with the property that a positive money supply shock drives the nominal interest rate down, and aggregate employment,...
Monetary policy shocks: What have we learned and to what end?
Christiano, Lawrence J., Eichenbaum, Martin, Evans, Charles L., J. B. Taylor, M. Woodford
This chapter reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the...
Firm-Specific Capital, Nominal Rigidities and the Business Cycle
Altig, David E, Christiano, Lawrence J., Eichenbaum, Martin, Lindé, Jesper
Macroeconomic and microeconomic data paint conflicting pictures of price behaviour. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices...
Price stability: is a tough central bank enough?
Lawrence J. Christiano, Terry J. Fitzgerald
What is the best way to achieve price stability? Conventional wisdom says that a tough, independent central bank is all that is necessary. However, a new view—the fiscal theory of the price...
Algorithms for solving dynamic models with occasionally binding constraints
Lawrence J. Christiano, Jonas D.M. Fisher
A description and comparison of several algorithms for approximating the solution to a model in which inequality constraints occasionally bind. Their performance is evaluated using various...
The Great Depression and the Friedman-Schwartz hypothesis
Lawrence J. Christiano, Roberto Motto, Massimo Rostagno
We evaluate the Friedman-Schwartz hypothesis that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression.
Expectation Traps and Monetary Policy
Stefania Albanesi, V. V. Chari, Lawrence J. Christiano
Why is inflation persistently high in some periods and low in others? The reason may be the absence of commitment in monetary policy. In a standard model, absence of commitment leads to multiple...
Monetary Policy in an International Financial Crisis
Lawrence J. Christiano, Christopher Gust, Jorge Roldos
We explore the role of monetary policy in the aftermath of a financial crisis. We develop a small open economy model with limited participation of households in a financial intermediary that provides...
The Permanent Income Hypothesis Revisited.
Christiano, Lawrence J, Eichenbaum, Martin, Marshall, David
Measured aggregate U.S. consumption does not behave like a martingale. The authors develop and test two variants of the permanent income model which reflect that. In both, agents make decisions in...
Habit Persistence, Asset Returns, and the Business Cycle
Michele Boldrin, Lawrence J. Christiano, Jonas D. M. Fisher
Two modifications are introduced into the standard real-business-cycle model: habit preferences and a two-sector technology with limited intersectoral factor mobility. The model is consistent with...
It has been suggested that existing estimates of the long-run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in postwar U.S. gross...
Linear-Quadratic Approximation and Value-Function Iteration: A Comparison.
This article studies the accuracy of two versions of Kydland and Prescott's (1980, 1982) procedure for approximating optimal decision rules in problems in which the objective fails to be quadratic...
This article describes three approximation methods I used to solve the growth model (Model 1) studied by the National Bureau of Economic Research's nonlinear rational-expectations-modeling group...
Sticky price and limited participation models of money: A comparison
Christiano, Lawrence J., Eichenbaum, Martin, Evans, Charles L.
Expectation Traps and Monetary Policy
Stefania Albanesi, V. V. Chari, Lawrence J. Christiano
We describe a class of monetary economies that generate persistent episodes of high and low inflation. In this class of economies, variations in expectations can lead private agents to take actions...
Habit persistence, asset returns and the business cycle
Michele Boldrin, Lawrence J. Christiano, Jonas D. M. Fisher
We introduce two modifications into the standard real business cycle model: habit persistence preferences and limitations on intersectoral factor mobility. The resulting model is consistent with the...
Expectation traps and monetary policy
Stefania Albanesi, V. V. Chari, Lawrence J. Christiano
Why is inflation persistently high in some periods and low in others? The reason may be absence of commitment in monetary policy. In a standard model, absence of commitment leads to multiple...
The expectations trap hypothesis
Lawrence J. Christiano, Christopher Gust
We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of a...
What happens after a technology shock?
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
We provide empirical evidence that a positive shock to technology drives up per capita hours worked, consumption, investment, average productivity and output . This evidence contrasts sharply with...
How do Canadian hours worked respond to a technology shock?
Lawrence J Christiano, Martin Eichenbaum, Robert Vigfusson
This paper investigates the response of hours worked to a permanent technology shock. Based on annual data from Canada, we argue that hours worked rise after a positive technology shock. We obtain a...
The response of hours to a technology shock: evidence based on direct measures of technology
Lawrence J. Christiano, Martin Eichenbaum, Robert J. Vigfusson
We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald and Kimball (1999). We conclude that hours worked...
Alternative procedures for estimating vector autoregressions identified with long-run restrictions
Lawrence J. Christiano, Martin Eichenbaum, Robert J. Vigfusson
We show that the standard procedure for estimating long-run identified vector autoregressions uses a particular estimator of the zero-frequency spectral density matrix of the data. We develop...
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
This paper analyzes the quality of VAR-based procedures for estimating the response of the economy to a shock. We focus on two key issues. First, do VAR-based confidence intervals accurately reflect...
The output, employment, and interest rate effects of government consumption
S. Rao Aiyagari, Lawrence J. Christiano, Martin Eichenbaum
Business cycles ; Expenditures, Public
Unit roots in real GNP: do we know, and do we care?
Lawrence J. Christiano, Martin Eichenbaum
Gross national product
Current real business cycle theories and aggregate labor market fluctuations
Lawrence J. Christiano, Martin Eichenbaum
Business cycles ; Labor productivity
Liquidity effects, monetary policy and the business cycle
Lawrence J. Christiano, Martin Eichenbaum
Liquidity (Economics) ; Business cycles
The effects of monetary policy shocks: evidence from the Flow of Funds
Lawrence J. Christiano, Martin Eichenbaum, Charles Evans
Monetary policy ; Business cycles ; Flow of funds
Algorithms for solving dynamic models with occasionally binding constraints
Lawrence J. Christiano, Jonas D.M. Fisher
Econometrics
Identification and the effects of monetary policy shocks
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
Monetary policy ; Business cycles ; Flow of funds
Small sample properties of GMM for business cycle analysis
Lawrence J. Christiano, Wouter Den Haan
Business cycles ; Statistics
Asset pricing lessons for modeling business cycles
Michele Boldrin, Lawrence J. Christiano, Jonas D.M. Fisher
Business cycles ; Capital assets pricing model
Inside money, outside money and short term interest rates
V.V. Chari, Lawrence J. Christiano, Martin Eichenbaum
Interest rates ; Money supply
Tobin's q and asset returns: implications for business cycle analysis
Lawrence J. Christiano, Jonas D.M. Fisher
Business cycles ; Capital assets pricing model
Expectation traps and discretion
V.V. Chari, Lawrence J. Christiano, Martin Eichenbaum
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy...
Chaos, sunspots, and automatic stabilizers
Lawrence J. Christiano, Sharon G. Harrison
We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria,...
Sticky price and limited participation models of money: a comparison
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
We provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts. After a contractionary monetary policy shock, the aggregate price...
Habit persistence and asset returns in an exchange economy
Michele Boldrin, Lawrence J. Christiano, Jonas D.M. Fisher
We examine asset prices and returns in the context of a version of the pure exchange economy studied in Lucas (1978) and Mehra and Prescott (1985). Our purpose is to identify the key channels by...
Algorithms for solving dynamic models with occasionally binding constraints
Lawrence J. Christiano, Jonas D.M. Fisher
We describe and compare several algorithms for approximating the solution to a model in which inequality constraints occasionally bind. Their performance is evaluated and compared using various...
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
Money supply ; Monetary policy
Monetary policy shocks: what have we learned and to what end?
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
Monetary policy
Interest rate smoothing in an equilibrium business cycle model
Lawrence J. Christiano, Martin Eichenbaum
Business cycles ; Econometric models ; Interest rates ; Monetary policy
Nominal rigidities and the dynamic effects of a shock to monetary policy
Lawrence J. Christiano, Martin Eichenbaum, Charles Evans
We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that...
Solving a particular growth model by linear quadratic approximation and by value function iteration
This paper studies the accuracy of two versions of the procedure proposed by Kydland and Prescott (1980, 1982) for approximating the optional decision rules in problems in which the objective fails...
The magnitude of the speculative motive for holding inventories in a real business cycle model
Lawrence J. Christiano, Terry J. Fitzgerald
The motive to hold inventories purely in the hope of profiting from a price increase is called the speculative motive. This motive has received considerable attention in the literature. However,...
Unit roots in real GNP: do we know, and do we care?
Lawrence J. Christiano, Martin Eichenbaum
Gross national product
Current real business cycle theories and aggregate labor market fluctuations
Lawrence J. Christiano, Martin Eichenbaum
In the 1930s, Dunlop and Tarshis observed that the correlation between hours worked and the return to working is close to zero. This observation has become a litmus test by which macroeconomic models...
The output, employment, and interest rate effects of government consumption
S. Rao Aiyagari, Lawrence J. Christiano, Martin Eichenbaum
This paper investigates the impact of aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on...
Liquidity effects, monetary policy, and the business cycle
Lawrence J. Christiano, Martin Eichenbaum
This paper presents new empirical evidence to support the hypothesis that positive money supply shocks drive short-term interest rates down. We then present a quantitative, general equilibrium model...
Liquidity effects, the monetary transmission mechanism, and monetary policy
Lawrence J. Christiano, Martin Eichenbaum
Liquidity (Economics) ; Monetary policy
Identification and the liquidity effect: a case study
This article reviews some of the issues economists confront in attempting to compile facts about how monetary policy actions affect the economy.
The expectations trap hypothesis
Lawrence J. Christiano, Christopher Gust
This article explores a hypothesis about the take-off in inflation in the early 1970s. According to the expectations trap hypothesis, the Fed was driven to high money growth by a fear of violating...
Inflation and monetary policy in the twentieth century
Lawrence J. Christiano, Terry J. Fitzgerald
This article characterizes the change in the nature of the money growth-inflation and unemployment-inflation relationships between the first and second halves of the twentieth century. The changes...
Stock market and investment good prices: implications of macroeconomics
Lawrence J. Christiano, Jonas D.M. Fisher
Stock market prices are procyclical, while investment good prices are countercyclical. A real business cycle model calibrated to these observations implies that 75% of the cyclical variation in...
Taylor rules in a limited participation model
Lawrence J. Christiano, Christopher J. Gust
We use the limited participation model of money as a laboratory for studying the operating characteristics of Taylor rules for setting the rate of interest. Rules are evaluated according to their...
Maximum likelihood in the frequency domain: a time to build example
Lawrence J. Christiano, Robert J. Vigfusson
A well known result is that the Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear...
Habit persistence, asset returns and the business cycles
Michele Boldrin, Lawrence J. Christiano, Jonas D.M. Fisher
We introduce two modifications into the standard real business cycles model: habit persistence preferences and limitations on intersectoral mobility. The resulting model is consistent with the...
Nominal rigidities and the dynamic effects of a shock to monetary policy
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that...
Expectation traps and monetary policy
Stefania Albanesi, V.V.Chari, Lawrence J. Christiano
Why is it that inflation is persistently high in some periods and persistently low in other periods? We argue that lack of commitment in monetary policy may bear a large part of the blame. We show...
Monetary policy in a financial crisis
Lawrence J. Christiano, Christopher Gust, Jorge Roldos
What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under...
Firm-specific capital, nominal rigidities and the business cycle
David Altig, Lawrence J. Christiano, Martin Eichenbaum, Jesper Linde
Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices...
Two flaws in business cycle accounting
Lawrence J. Christiano, Joshua M. Davis
Using ‘business cycle accounting’ (BCA), Chari, Kehoe and McGrattan (2006) (CKM) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not...
Optimal fiscal and monetary policy: some recent results
V.V. Chair, Lawrence J. Christiano, Patrick J. Kehoe
Fiscal policy ; Monetary policy
Inside money, outside money and short-term interest rates
V. V. Chari, Lawrence J. Christiano, Martin Eichenbaum
Business cycles ; Monetary policy ; Econometric models ; Interest rates
The term structure of interest rates and the aliasing identification problem
Theory typically does not give us reason to believe that economic models ought to be formulated at the same level of time aggregation at which data happen to be available. Nevertheless, this is...
Rational expectations, hyperinflation, and the demand for money
This paper shows how to derive the family of models in which Cagan’s model of hyperinflation is a rational expectations model. The slope parameter in Cagan’s portfolio balance equation is...
On the accuracy of linear quadratic approximations: an example
This paper investigates—in the context of a simple example—the accuracy of an econometric technique recently proposed by Kydland and Prescott. We consider a hypothetical econometrician who has a...
Intertemporal substitution and smoothness of consumption
We prove the general existence of steady states with positive consumption in an N goods and fiat money version of the Kiyotaki-Wright (“On money as a median of exchange,” Journal of Political...
Dynamic properties of two approximate solutions to a particular growth model
This paper investigates two methods of approximating the optimal decision rules of a stochastic, representative agent model which exhibits growth in steady state and cannot be expressed in...
Temporal aggregation and structural inference in macroeconomics
Lawrence J. Christiano, Martin Eichenbaum
This paper examines the quantitative importance of temporal aggregation bias in distorting parameter estimates and hypothesis tests. Our strategy is to consider two empirical examples in which...
Estimating continuous time rational expectations models in frequency domain: a case study
This paper presents a completely worked example applying the frequency domain estimation strategy proposed by Hansen and Sargent [1980, 1981a]. A bivariate, high order continuous time autoregressive...
The output, employment, and interest rate effects of government consumption
S. Rao Aiyagari, Lawrence J. Christiano, Martin Eichenbaum
This paper investigates the impact on aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on...
Asset pricing lessons for modeling business cycles
Michele Boldrin, Lawrence J. Christiano, Jonas D.M. Fisher
We develop a model which accounts for the observed equity premium and average risk-free rate, without implying counterfactually high risk aversion. The model also does well in accounting for...
Optimal fiscal policy in a business cycle model (technical appendix)
V. V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
Business cycles - Econometric models
Solving dynamic equilibrium models by a method of undetermined coefficients
A presentation of an undetermined coefficients method for obtaining a linear approximation to the solution of a dynamic rational-expectations model. It shows how that solution can be used to compute...
Maximum likelihood in the frequency domain: a time to build example
Lawrence J. Christiano, Robert J. Vigfusson
The Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear decomposition. Exploiting these...
Taylor rules in a limited participation model
Lawrence J. Christiano, Christopher J. Gust
The authors use the limited participation model of money to study Taylor rules' operating characteristics for setting the interest rate. Rules are evaluated according to their ability to protect the...
Lawrence J. Christiano, Terry J. Fitzgerald
The "ideal" band-pass filter can be used to isolate the component of a time series that lies within a particular band of frequencies, but applying this filter requires a data set of infinite length....
The expectations trap hypothesis
Lawrence J. Christiano, Christopher Gust
The authors examine the inflation take-off of the early 1970s in terms of the expectations trap hypothesis, according to which fear of violating the public’s inflation expectations pushed the Fed...
Maximum likelihood in the frequency domain: the importance of time-to-plan
Lawrence J. Christiano, Robert J. Vigfusson
The authors illustrate the use of various frequency-domain tools for estimating and testing dynamic, stochastic, general-equilibrium models. Their substantive results confirm other findings that...
Nominal rigidities and the dynamic effects of a shock to monetary policy
Lawrence J. Christiano, Martin Eichenbaum, Charles Evans
The authors’ model, embodying moderate amounts of nominal rigidities, accounts for the observed inertia in inflation and persistence in output. The key features of their model are those that...
Monetary policy in a financial crisis
Lawrence J. Christiano, Christopher Gust, Jorge Roldos
What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under...
The Great Depression and the Friedman-Schwartz hypothesis
Lawrence J. Christiano, Roberto Motto, Massimo Rostagno
The authors evaluate the Friedman-Schwartz hypothesis--that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression. To do this, they first estimate a...
Firm-specific capital, nominal rigidities, and the business cycle
David E. Altig, Lawrence J. Christiano, Martin Eichenbaum, Jesper Linde
Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices...
Two flaws in business cycle dating
Lawrence J. Christiano, Joshua M. Davis
Using “business cycle accounting,” Chari, Kehoe, and McGrattan (2006) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising...
Why Do Firms Hold Inventories?
A wide range of motives for holding inventories has been identified in the literature. These include the desire to smooth production in the face of fluctuating demand, the desire to avoid stockouts,...
Expectation Traps and Monetary Policy
Stefania Albanesi, V.V. Chari, Lawrence J. Christiano
We examine whether standard monetary general equilibrium models with benevolent monetary authorities acting under discretion can generate persistent episodes of high and low inflation. Specifically,...
The output, employment, and interest rate effects of government consumption
Aiyagari, S. Rao, Christiano, Lawrence J., Eichenbaum, Martin
Habit Persistence and Asset Returns in an Exchange Economy.
Boldrin, Michele, Christiano, Lawrence J, Fisher, Jonas D M
We examine asset prices and returns in the context of a pure exchange economy. Our purpose is to identify the key channels by which changes in preferences affect the equity premium and the risk-free...
Alternative Procedures for Estimating Vector Autoregressions Identified with Long-Run Restrictions
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
We show that the standard procedure for estimating long-run identified vector autoregressions uses a particular estimator of the zero-frequency spectral density matrix of the data. We develop...
The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds.
Christiano, Lawrence J, Eichenbaum, Martin, Evans, Charles
This paper assesses the impact of a monetary policy shock on the U.S. economy. The authors' measures of contractionary monetary policy shocks are associated with a fall in various monetary aggregates...
The Permanent Income Hypothesis Revisited
Lawrence J. Christiano, Martin Eichenbaum, David Marshall
This paper investigates whether there are simple versions of the permanent income hypothesis which are consistent with the aggregate U.S. consumption and output data. Our analysis is conducted within...
The Output, Employment, and Interest Rate Effects of Government Consumption
S. Rao Aiyagari, Lawrence J. Christiano, Martin Eichenbaum
This paper investigates the impact on aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on...
Identification and the Liquidity Effect of a Monetary Policy Shock
Lawrence J. Christiano, Martin Eichenbaum
Conventional wisdom holds that unanticipated expansionary monetary policy shocks cause transient but persistent decreases in real and nominal interest rates. However a number of econometric studies...
Liquidity Effects and the Monetary Transmission Mechanism
Lawrence J. Christiano, Martin Eichenbaum
Several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in...
Liquidity Effects, Monetary Policy, and the Business Cycle
Martin Eichenbaum, Lawrence J. Christiano
This paper presents new empirical evidence to support the hypothesis that positive money supply shocks drive short-term interest rates down. We then present a quantitative, general equilibrium model...
The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds
Lawrence J. Christiano, Martin Eichenbaum, Charles Evans
This paper uses the Flow of Funds accounts to assess the impact of a monetary policy shock on the borrowing and lending activities of different sectors of the economy. Our measures of contractionary...
Asset Pricing Lessons for Modeling Business Cycles
Michele Boldrin, Lawrence J. Christiano, Jonas D.M. Fisher
We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business...
Inside Money, Outside Money and Short Term Interest Rates
V. V. Chari, Lawrence J. Christiano, Martin Eichenbaum
This paper presents a quantitative general equilibrium model with multiple monetary aggregates. The framework incorporates a banking sector and distinguishes between M1, the monetary base, currency...
Tobin's q and Asset Returns: Implications for Business Cycle Analysis
Lawrence J. Christiano, Jonas Fisher
The marginal cost of plant capacity, measured by the price of equity is significantly procyclical. Yet, the price of a major intermediate input into expanding plant capacity, investment goods, is...
Expectation Traps and Discretion
V. V. Chari, Lawrence J. Christiano, Martin Eichenbaum
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy...
Chaos, Sunspots, and Automatic Stabilizers
Lawrence J. Christiano, Sharon G. Harrison
We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria,...
Sticky Price and Limited Participation Models of Money: A Comparison
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
This paper provides new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts. In response to a contractionary monetary policy shock, the...
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
We develop and implement a limited information diagnostic strategy for assessing the plausibility of monetary business cycle models. Our strategy focuses on a model's ability to reproduce empirical...
Monetary Policy Shocks: What Have We Learned and to What End?
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center...
Taylor Rules in a Limited Participation Model
Lawrence J. Christiano, Christopher J. Gust
We use the limited participation model of money as a laboratory for studying the operating characteristics of Taylor rules for setting the rate of interest. Rules are evaluated according to their...
Maximum Likelihood in the Frequency Domain: A Time to Build Example
Lawrence J. Christiano, Robert J. Vigfusson
A well known result is that the Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear...
Lawrence J. Christiano, Terry J. Fitzgerald
The `ideal' band pass filter can be used to isolate the component of a time series that lies within a particular band of frequencies. However, applying this filter requires a dataset of infinite...
Understanding the Fiscal Theory of the Price Level
Lawrence J. Christiano, Terry J. Fitzgerald
We review the fiscal theory of the price level. We place special emphasis on the theory's implications for the feasibility of price stability.
The Expectations Trap Hypothesis
Lawrence J. Christiano, Christopher J. Gust
We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of a...
How Severe is the Time Inconsistency Problem in Monetary Policy?
Stefania Albanesi, V.V. Chari, Lawrence J. Christiano
We analyze two monetary economies - a cash-credit good model and a limited participation model. In our models, monetary policy is made by a benevolent policymaker who cannot commit to future...
Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
Lawrence J. Christiano, Martin Eichenbaum, Charles Evans
We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that...
Money Growth Monitoring and the Taylor Rule
Lawrence J. Christiano, Massimo Rostagno
Using a series of examples, we review the various ways in which a monetary policy characterized by the Taylor rule can inject volatility into the economy. In the examples, a particular modification...
Expectation Traps and Monetary Policy
Stefania Albanesi, V.V. Chari, Lawrence J. Christiano
Why is it that inflation is persistently high in some periods and persistently low in other periods? We argue that lack of commitment in monetary policy may bear a large part of the blame. We show...
Monetary Policy in a Financial Crisis
Lawrence J. Christiano, Christopher Gust, Jorge Roldos
What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under...
What Happens After a Technology Shock?
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
We provide empirical evidence that a positive shock to technology drives per capita hours worked, consumption, investment, average productivity and output up. This evidence contrasts sharply with the...
Stock Market and Investment Goods Prices: Implications for Macroeconomics
Lawrence J. Christiano, Jonas D. M. Fisher
Stock market prices, a measure of the marginal cost of installed capital, are procyclical. Yet, prices of investment goods, the main input into new installed capital, are countercyclical. We exploit...
Lawrence J. Christiano, Martin Eichenbaum, Robert Vigfusson
This paper analyzes the quality of VAR-based procedures for estimating the response of the economy to a shock. We focus on two key issues. First, do VAR-based confidence intervals accurately reflect...
Optimal Monetary Policy in a 'Sudden Stop'
Fabio Braggion, Lawrence J. Christiano, Jorge Roldos
In the wake of the 1997-98 financial crises, interest rates in Asia were raised immediately, and then reduced sharply. We describe an environment in which this is the optimal monetary policy. The...
Temporal Aggregation and Structural Inference in Macroeconomics
Lawrence J. Christiano, Martin S. Eichenbaum
This paper examines the quantitative importance of temporal aggregation bias in distorting parameter estimates and hypothesis tests. Our strategy is to consider two empirical examples in which...
Small Sample Properties of GMM for Business Cycle Analysis
Lawrence J. Christiano, Wouter J. Den Haan
We investigate, by Monte Carlo methods, the finite sample properties of GMM procedures for conducting inference about statistics that are of interest in the business cycle literature. These...
Algorithms for Solving Dynamic Models with Occasionally Binding Constraints
Lawrence J. Christiano, Jonas D.M. Fisher
We describe and compare several algorithms for approximating the solution to a model in" which inequality constraints occasionally bind. Their performance is evaluated and compared" using various...
Solving Dynamic Equilibrium Models by a Method of Undetermined Coefficients
I present an undetermined coefficients method for obtaining a linear approximating to the solution of a dynamic, rational expectations model. I also show how that solution can be used to compute the...
The Conventional Treatment of Seasonality in Business Cycle Analysis: Does it Create Distortions?
Lawrence J. Christiano, Richard M. Todd
'No.' So says one model that is broadly consistent with postwar U.S. seasonal and business cycle data.
Liquidity effects, the monetary transmission mechanism, and monetary policy
Lawrence J. Christiano, Martin Eichenbaum
Liquidity (Economics) ; Monetary policy
Identification and the liquidity effect: a case study
This article reviews some of the issues economists confront in attempting to compile facts about how monetary policy actions affect the economy.
Facts and myths about the financial crisis of 2008
V.V. Chari, Lawrence J. Christiano, Patrick J. Kehoe
The United States is indisputably undergoing a financial crisis. Here we examine four claims about the way the financial crisis is affecting the economy as a whole and argue that all four claims are...
HABIT PERSISTENCE AND ASSET RETURNS IN AN EXCHANGE ECONOMY
BOLDRIN, MICHELE, CHRISTIANO, LAWRENCE J., FISHER, JONAS D.M.
We examine asset prices and returns in the context of a pureexchange economy. Our purpose is to identify the key channels by which changes in preferences affect the equity premium and the risk-free...
Expectation traps and discretion
V.V. Chari, Lawrence J. Christiano, Martin Eichenbaum
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy...
Chaos, sunspots, and automatic stabilizers
Lawrence J. Christiano, Sharon G. Harrison
We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria,...
Sticky price and limited participation models of money: a comparison
Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans
We provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts. After a contractionary monetary policy shock, the aggregate price...
Habit persistence and asset returns in an exchange economy
Michele Boldrin, Lawrence J. Christiano, Jonas D.M. Fisher
We examine asset prices and returns in the context of a version of the pure exchange economy studied in Lucas (1978) and Mehra and Prescott (1985). Our purpose is to identify the key channels by...
Optimal monetary policy in a [`]sudden stop'
Braggion, Fabio, Christiano, Lawrence J., Roldos, Jorge
In the wake of the 1997-98 financial crises, interest rates in Asia were raised immediately, and then reduced sharply. We describe an environment in which this is the optimal monetary policy. The...
Firm-specific capital, nominal rigidities and the business cycle
David Altig, Lawrence J. Christiano, Martin Eichenbaum, Jesper Linde
This paper formulates and estimates a three-shock US business cycle model. The estimated model accounts for a substantial fraction of the cyclical variation in output and is consistent with the...